Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to find out two things about you: your ability to pay back the loan, and your willingness to repay the loan. To assess your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company calculated the original FICO score to assess creditworthines. For details on FICO, read more here.
Credit scores only consider the information contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were invented as it is in the present day. Credit scoring was developed to assess willingness to repay the loan without considering other irrelevant factors.
Past delinquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score considers both positive and negative items in your credit report. Late payments will lower your credit score, but consistently making future payments on time will improve your score.
Your credit report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This history ensures that there is sufficient information in your report to generate an accurate score. If you don't meet the criteria for getting a credit score, you may need to establish a credit history prior to applying for a mortgage.
At AmeriBest Mortgage, we answer questions about Credit reports every day. Call us: (321) 777-7277.